THE SAS has launched an ­internal inquiry into how the elite regiment became embroiled in allegations that it killed ­Princess Diana and Dodi Fayed.

Chiefs want to know when the sensational claim surfaced and who in the regiment knew of it.

Senior officers have also been ordered to find out what action was taken against the soldier who allegedly made the boast.

General Sir Peter Wall, head of the British Army, is said to be furious the SAS’s reputation has been tarnished.

Sources close to General Wall said the controversy was “the most embarrassing and potentially damaging event in the regiment’s 70-year history”.

One officer called it a “fiasco” for a ­regiment “supposed to operate in the shadows”.

The startling allegations over Diana and Dodi’s deaths surfaced at last month’s court ­martial of Sergeant Danny Nightingale, the SAS sniper convicted of illegally stashing a pistol and ammunition in his bedroom in Hereford.

The claims were contained in a letter from the mother-in-law of Sgt Nightingale’s former housemate – a fellow sniper referred to as Soldier N – which was sent to SAS headquarters in September 2011.

It is understood the letter was passed to military ­prosecutors prior to the Nightingale trial’s start but has only just been brought to the attention of Scotland Yard.

Detectives are currently analysing what they describe as “new information” but have not launched a fresh inquiry into Diana and Dodi’s fatal car crash in Paris on August 31 1997.

Dodi’s family are thought to want a full police investigation.

The seven-page letter by ­Soldier N’s mother-in-law was written when her daughter’s marriage to him was falling apart after a police raid following a confrontation between the estranged couple.

It is understood the letter was passed by the SAS to the Service Prosecuting Authority before the Nightingale trial began. The authority removed all references to the SAS before releasing the documents to the court.

The letter says that Soldier N, a ­sergeant, told his wife the SAS had “arranged” ­Princess Diana’s death and it was ­“covered up”.

Solider N was the chief prosecution witness in the case of sniper Danny Nightingale (pictured)

All the warning signs were there but were ignored. Instead of dealing with Soldier N’s family issues he was sent to Afghanistan for six months

A senior source

It also makes other allegations including that Soldier N threatened to murder his wife and in-laws. It states: “He is a real threat to all of us here. He reminded my daughter of a man in his unit who had matrimonial trouble and he went home and shot her and the family.”

“He also told her that it was the XXX (the word SAS was removed by the authority) who arranged Princess Diana’s death and that has been covered up. So what chance do my daughter and I stand against his threats.”

It adds: “We are just a normal decent family and we have no wish to be subjected to this information.”

One senior source said last night: “This whole mess was all entirely preventable. All the warning signs were there but were ignored. Instead of dealing with Soldier N’s family issues he was sent to Afghanistan for six months.

“This is a problem of the SAS’s own making.”

Another source said: “This has been the worst year on record for the SAS in terms of bad publicity. The Danny Nightingale case was followed by the deaths of three Territorials on an SAS selection test last month. Now comes the claim that the SAS was somehow involved in Diana’s death.”

Soldier N, chief prosecution witness in the case against Nightingale, was jailed for two years after admitting unlawful possession of weapons.